Nine currencies, one Mickey Mouse economy

Zimbabwe – a world of wonders! So goes our national tourism brand theme. I guess one of the wonders is that we are a country using the highest number of legal tenders on planet earth. This is the country where the US dollar, British pound, Euro, pula, rand, yen, yuan, rupee and Australian dollar are official currency – a total of nine currencies for our little economy. CLEMENCE MACHADU asks what the implications are of this multiple currency mix?

A little bird has just whispered in my mind that since we have recently vowed not to chase away the Chinese and Indians from the ‘reserved’ sectors of indigenisation, we are further rewarding them by allowing them to trade their cheap imports in their mother currencies. The Chinese can now sell us their cheap imports in their own yuan, while the Indians can sell us their wares in their very own rupee. The Chinese and Indians can now feel more at home, while occupying the reserved sectors, since all of us will now be legally obliged to learn the language of their currencies, right to the last penny. Hey stubborn sparrow – out of my innocent mind!

Using the currencies of other nations has the benefit of reducing transaction costs of trade with countries using the same currency. Economic integration with the rest of the world also becomes easier. Some also believe that it invokes greater confidence among international investors and eliminates currency risk crisis.

The central bank, announcing the addition of four more currencies, says trade and investment between Zimbabwe, China, India, Japan, and Australia have grown appreciably, thereby necessitating the use of their currencies.

Does the above warrant us in having nine foreign currencies as legal tender? Isn’t it just too much, synonymous with using a dynamite to kill a mosquito?

Should we adopt the currency of every country we are experiencing booming trade and investment with? After all, we are already pricing the majority of our exports and imports with these countries in US dollars.

One would agree that it is actually two currencies that are being used in our economy, that is the US dollar and the rand. You hardly see other currencies such as the pula, euro and pound, although they were introduced half a decade ago. This proves that even the yuan, yen, rupee and Australian dollar will just exist in principle but absent in the hands of the transacting public.

The new currencies are only coming to add more problems. Once a currency is made legal tender, there are certain obligations it requires of everyone. Every creditor must by law accept legal tender in settlement of a debt.

Against this background, members of the public are left at the mercy of accepting counterfeit notes. The addition of four currencies to our multicurrency basket without prior education of members of the public about the security features of the new notes provides a fertile ground for the breeding of counterfeiters.

The central bank should also have introduced an aggressive programme to raise awareness about these new notes, so that people can tell a fake note from an authentic one. The layman in the streets also doesn’t know the exchange rates of these new currencies.

Why is it that other dollarised countries such as Panama, Ecuador and El Salvador have not used not more than two currencies? What’s so special about Zimbabwe? Or are these just desperately foolish measures for normal circumstances?

Having all these currencies can never eliminate the risk of external crisis; it cannot reduce our unsustainable national debt; it cannot end corruption; it cannot end the liquidity crisis; neither can it end our unfriendly investment laws or increase our trade competitiveness. We need to look at real issues, instead of wasting time and money on trivia.

The newly introduced currencies will also intensify the coin change woes, as we are unlikely to get enough coins along with the notes. Imagine the frustration of going in a shop accepting nine currencies, with different customers paying with each of the currencies. It will blow the storekeeper’s mind. Worse still these currencies may fluctuate on a daily basis and he has to know the rates of the day before he operates.

What Zimbabwe should be focusing on right now is improving investment laws and allowing more capital to move in. This can be achieved by amending the indigenisation laws and respecting private property. You don’t just wake up with investment worth JPY100bn simply because you have adopted the yen.

We currently have a trade deficit with virtually all the nine countries, which implies that we have weak terms of trade. This can only mean we should be working on improving the competitiveness of the manufacturing sector.

Post published in: Business
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